provides a warning to
lenders to take particular
care when seeking to
enforce farm mortgages.

What action should be taken?

Hargraves Secured
Investments Limited 1

Agribusiness lenders, and their advisors, looking to enforce
farm mortgages.

TurkAlert

Don’t jump the gun

Prior to commencing proceedings to enforce a farm mortgage,
lenders must ensure that they mediate the “farm debt” to which
it relates to. Lenders cannot rely on the “all monies” provision
of the mortgage to capture debts not included in the mediation
process.

Background
In August 2003, Hargraves Secured Investments Limited (HSI)
advanced $450,000 to Ms Waller under a loan agreement (the
First Loan Agreement). The advance was secured by an “all
monies” first registered mortgage over Ms Waller’s farm.
Ms Waller defaulted on the terms of the First Loan Agreement.
HSI gave notice under the Farm Debt Mediation Act 1994
(NSW) (the Act). A mediation under the Act took place on
2 June 2005 which resulted in a Deed of Settlement being
entered into between the parties on 26 July 2005.
Pursuant to the Deed, the parties entered into a further loan
agreement (the Second Loan Agreement) for $640,000, of
which $17,409.53 was advanced. The remainder paid out the
First Loan Agreement and past and future interest due under
that agreement.
Ms Waller defaulted under the Second Loan Agreement.
The parties entered into a further loan Agreement (the Third
Loan Agreement). Ms Waller defaulted under the Third Loan
Agreement.
On 20 October 2006, HSI obtained a section 11 certificate from
the NSW Rural Assistance Authority (the Authority) in respect of
the mediation that had taken place in June 2005.
On 1 November 2007, HSI commenced enforcement
proceedings for possession of the farm and a monetary
judgment against Ms Waller.

1

Relevant provisions of the Act

Decision of the High Court

Section 6 of the Act provides that any
enforcement action taken by a creditor to whom
the Act applies otherwise than in compliance with
the Act, is void.

In her appeal, Ms Waller relied on the following
arguments:

Section 11 of the Act provides, in relevant part,
that the Authority can issue a certificate that the
Act does not apply to a farm mortgage, if the
farmer is in default under the farm mortgage
and if the Authority is satisfied that satisfactory
mediation has taken place in respect of the farm
debt involved.
‘Enforcement action’ is defined in s4(1) to mean,
in relation to a farm mortgage, taking possession
of property under the mortgage or any other
action to enforce the mortgage, including the
giving of any statutory enforcement notice, or
the continuation of any action to that end already
commenced.
‘Farm debt’ means a debt incurred by a farmer
for the purposes of the conduct of a farming
operation that is secured wholly or partly by a
farm mortgage.
‘Farm mortgage’ includes any interest in,
or power over, any farm property securing
obligations of the farmer whether as a debtor
or guarantor, including any interest in, or power
arising from, a hire purchase agreement relating
to farm machinery, but does not include:
>> any stock mortgage or any crop or wool lien;
or
>> the interest of the lessor of any farm
machinery that is leased.

Judgment at first instance
On 12 November 2009, Harrison J of the
Supreme Court determined that the section 11
certificate issued at the request of HSI was valid
and accordingly, gave judgement for possession
and debt in favour of the lender.
Ms Waller appealed against the decision of
Harrison J.
On 11 November 2010, the Court of Appeal
(Tobias JA, Sackville AJA and Macfarlan JA
dissenting) dismissed Ms Waller’s appeal. Ms
Waller appealed to the High Court.

>> the proceedings instituted by HSI concerned
a “farm mortgage” which was not the farm
mortgage in respect of which the section 11
certificate issued on 20 October 2006;
>> the Third Loan Agreement gave rise to a farm
debt which was distinct from the debt arising
out of the First Loan Agreement (which was
the subject of the mediation);
>> the debt arising under the Third Loan
Agreement was a new and distinct “interest
in, or power over” Ms Waller’s farm and
therefore a new and distinct “farm mortgage”
in favour of HSI;

TurkAlert

Don’t jump the gun
Lisa Dorman and Alysha Tuziak | February 2012

>> HSI had not complied with the Act because
the certificate that had been issued related
only to the farm debt created by the First
Loan Agreement (and the proceedings
constituted enforcement action un relation
to the debt created by the Third Loan
Agreement).
The High Court agreed with the contentions
made by Ms Waller.
In summary, the High Court fuond:
>> A certificate, as provided for in section 8(3)
of the Act, is a certificate that the Authority
is satisfied that a satisfactory mediation
has taken place in respect of the farm debt
involved2.
>> The reference to a “farm mortgage” is a
reference to a farm mortgage under which
money is owed by a farmer to a creditor3.
>> The definition of “farm mortgage” extends
beyond the general law and statutory
definitions. It extends to an “interest” or
“power” over farm property securing an
obligation to repay a “farm debt”. If the
interest or power is granted as security, and
the debt is extinguished, then it no longer
secures any obligations of the farmer as a
debtor4.
>> The discharge of the First Loan Agreement
and the Second Loan Agreement (by entry
into the Third Loan Agreement) extinguished
Ms Waller’s obligations arising under the
mortgage by reason of those agreements5.

2

Don’t jump the gun
Lisa Dorman and Alysha Tuziak | February 2012

TurkAlert

The Act, through the broad definition of
a “farm mortgage”, treats those distinct
interests as in three successive “farm
mortgages”6.
>> Notwithstanding the mortgage over the
property was an “all monies” mortgage, the
Third Loan Agreement created a new interest
or power over the property . The Third
Loan Agreement was not included in the
section 11 certificate. As a result, HSI had
not obtained a valid certificate prior to the
commencement of the enforcement action.
The High Court also found that “enforcement
action” included not only the proceedings for
possession but also any reliance on any rights in
the farm mortgage, including commencement of
proceedings for debt.
As a result, the High Court allowed the appeal
with costs.

Implications for lenders
The decision is a reminder to lenders to take
particular care when enforcing rights under farm
mortgages.
In summary, even if a section 11 certificate has
been obtained in respect of a farm mortgage, a
lender must carefully check that the farm debt it
relates to has not been discharged in any way
prior to the commencement of enforcement
action under the mortgage.
Lenders cannot rely on the “all monies”
provisions of the mortgage to capture debts
not included at mediation. If in doubt, the
lender should serve fresh notices for mediation
concerning the new facility or obtain advice as
to whether the section 11 certificate obtained is
sufficient.